Preparing to Sell
Thinking of Selling?
Some things to think about when Selling your property in Puerto Peñasco, Mexico.
Please consider the following:
Start gathering your ownership and related documents now. (the paperwork) It’s better to be proactive and find what you and your agent will need to get the transaction closed in a prompt manner, on your behalf. Once a Buyer is found and a deal is struck, you’ll want to move forward quickly, Buyers are excited to move in. Remember- you were once an excited buyer too.
- The entire escritura (deed) and inscription page, or, your full original bank trust (a certified copy is acceptable)
- Identification (passports) and immigration cards for the persons on the property
- (If a corporation) The corporation and all related documents, including notarized papers and apostilles
- A recent property taxes ‘paid’ receipt and/or your catastral number
Some of the documents needed will be:
-Current utility bills for the property and for your main residence, in case you live outside Mexico
- All ‘facturas’ related to your property. If capital gains could be an issue, these should help lower the tax
- Current HOA statement, if applicable
- Current receipt of yearly bank trust payment, and federal zone concession, if applicable
** If there is an extraordinary circumstance to deal with on your property, let your agent know right away. Some documents take quite a bit of time to obtain. Example: in the cases of a death, divorce, new marriage, or other, additional documentation will be needed. Keep in mind, there will be extra charges to obtain, certify, and translate these documents. The documents will also need to be notarized and apostilled from the states of their origin to be certified in Mexico.
Prestige Properties can assist with the process. We stay engaged with the notario publico to motivate and streamline the closing, to get you the proceeds of your sale as quickly as possible.
Capital Gains Tax:
A foreigner who sells property in Mexico is liable under special rules, much like the United States, for the payment of I.S.R. tax (Impuesto Sobre la Renta) which is the Mexican equivalent of the Capital Gains tax. Liability could be either 20% of the declared value of the transaction or 28% to 35% of the net gain, less the improvements made, commissions paid, and other allowable expenses. The formula is complicated (much like US tax laws) and the tax should be figured both ways and confirmed by the Notario Publico who will be preparing the final deed and tax declarations. Sometimes there are tax strategies that can be used to lower this number.
Understanding Mexican tax law is an integral part of the purchasing process. What you do today dictates your tax liabilities tomorrow. *Note- Try to keep all facturas related to your property!
The following is an overview of the capital gains tax regulations currently in place for individuals. Note that the information is intended for individuals, not corporations. Over time these regulations may change, therefore it is important to make sure that the process outlined here is still in effect by contacting a certified accountant or a Mexican Notario Publico.
Capital gains tax law in Mexico states that tax is owed on the profit you receive when you sell your home or property. By law, you have two options when it comes to capital gains and you can use whichever is the better of the two options for you:
1. You pay 28% to 35% of the net profit. (There are a variety of possible deductions included with this option.)
2. You pay up to 25% of the gross sales amount with no deductions. (Try to find deductions)
Although a 28% to 35% capital gains tax may seem high, it is similar to US and probably less than Canadian cap gains. Mexico does have several laws and procedures that will assist you in maximizing your cost basis, thereby showing a reduction in your net profit and potentially lowering your capital gains. The key is understanding these laws before you buy, not when you decide to sell.
*Percentages reflect parts of the 2013-2015 Tax Codes. Check with an Accountant or Notario Publico for any changes in these percentages.
When you employ an agent, expect charges of around 5-8% of the agreed upon sales price as a fee, when your property sells. Sometimes this is negotiable. You will also need to pay IVA (Mexican Sales Tax) on agent commissions. For example, if you pay 8% commission on a $100,000 sale ($8,000), you will need to pay IVA on $8,000. As of 2014, IVA is set at 16% in Mexico and, $8,000 x .16 = $1,280. To conclude the example $8,000 + $1,280 = $9,280 if 8% commission was agreed to. Similar to the United States and other countries.
Manifesting- Manifesting is simply recording the amount of money spent on a home’s construction or remodel, in order to add it to the Owners’ cost basis. Adding to your cost basis is the key to reducing your capital gains tax. Proper documentation and manifesting your construction are vital when building your new home. (again- keep those facturas!) Why? When you sell your home, the manifested cost plus the cost of your lot stated in your trust (title), will be used to determine the basis for capital gains tax. If you have not manifested your construction, Mexican tax law will not recognize your construction costs and you will not be able to use them as deductible expenses. All of your receipts (facturas), cancelled checks and bank statements will not help unless you have completed your manifestation after construction.
Termination of Works- When construction is finished and you are ready to manifest your construction, you (or your contractor) will need to take your building permit to the Departamento de Obras Publicas (Public Works) with a letter stating the total amount you spent on your construction and confirmation that construction is finished. You or your contractor can write the letter. With this letter, you will request an official statement of completion called an “Aviso de Terminación de Obra,” which is a “Letter of Termination of Works.” This letter will state the amount you spent on your construction, which should be in accordance with the amount stated on the building permit.
Social Security- Social Security for employees is a very serious issue in Mexico. Your home can actually have a lien filed against it or sold to force payment if taxes are not paid. Beware, this can happen even years after you finish your construction. If the amount of Social Security taxes paid corresponds to the amount of your construction, you will receive a letter from Social Security called the “Carta de Razonabilidad de Pago,” which means “Letter of Reasonability of Payment.” This letter is very important, as it is your protection to prevent any future claims for non-payment of Social Security taxes. Before you can receive your Letter of Termination of Works, you will be required to have this letter from Social Security.
Manifesting Construction- Once you have your Letter of Termination of Works and your letter from Social Security, you simply take them to the tax office (Oficina de Catastro). There, the value will be recorded and added to the cost reflected on your trust document. Once completed, you have successfully manifested your construction and established an accurate tax basis for your property.
Agents are not attorneys- nor accountants- nor notario publicos- Although most real estate agents in Mexico have a lot of experience, do good work, and have a vast of knowledge of their markets, they cannot offer legal opinions and make legal decisions for your property. You, the Seller, are responsible for the decisions made regarding your property. If you have delicate questions regarding your property, please consult directly with a notario publico and/or certified public accountant before selling your property. Your agent should be able to suggest competent parties in their fields to speak with.
Electronic invoices- If you purchased your property after the last quarter of 2013 (some records show the date as third quarter of 2014) make sure you have your CFDI ‘electronic invoice’. This is a new requirement from the government for you to comply with the ‘anti money laundering law’ that is in effect. Without this document, your cost basis could be ‘0’ when figuring capital gains taxes owed. All parties need the electronic invoice, including the notario publico, who will have it but is not required to give it to you, unless you ask. So ask the notario and/or trust bank, and obtain it. Staple the CFDI into your bank trust.
Note: Sellers/Owners in Las Conchas, the 30 year master trust for Las Conchas is coming to an end. You need to get your individual bank trust before 2017. Feel free to have a Prestige Properties consultant assist you with the process and details.
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